Accurate goal setting is fundamental to the Exit Planning Process and to the advisors who help owners through it. It also provides three essential benefits for owners.
Benefit 1: Goals Drive Action Toward the Outcome Owners Desire
The main reason owners never begin Exit Planning is that they have not spent any time considering the precise terms and conditions under which they would happily leave their businesses. And even if they did take time to imagine those terms, few know how or where to start in making their exits a reality. They don’t know that the vital first step is to set their exit goals. When advisors ask owners to articulate their goals, they initiate a discussion that owners likely have never had with any advisor, let alone one as knowledgeable about Exit Planning as an Exit Planning Advisor.
Benefit 2: Goals Give Owners Road Maps
Goals help owners envision the road that takes them from where they are to where they want to be. That bird’s eye view alleviates much of an owner’s initial anxiety about Exit Planning because a road map illustrates how owners can systematically reach their goals, gauge how close or far they are from achieving them, and keep them in control of the trip. Put another way: An owner’s goals are the endpoint of a journey, and that journey is the Exit Planning Process.
Benefit 3: Articulating Goals Eliminates Inconsistencies
It is not at all uncommon for owners to hold conflicting goals. For example, an owner may want to leave the business in five years, continue her income of $300,000, and transfer her construction business to her son who is in his sixth year as an undergraduate majoring in French literature. Conflicting goals can cause owners to forestall any planning because they don’t think there is an acceptable path forward. They procrastinate because they are goal-conflicted.
Articulating goals reveals conflicts and allows a planning process to address them.
Three Goal Types
With an understanding of why goal setting is so critical to owners, advisors, and the Exit Planning Process, we turn now to a discussion of the three types of goals: foundational, universal, and values-based.
The foundational goal of all business exits is financial independence for the owner. This means that the transfer of ownership yields enough cash so that owners never have to work again, unless they choose.
The foundational goal is the acid test for every Exit Plan, regardless of Exit Path (e.g., sale to third party or transfer to insider). To be successful, every Exit Plan must create financial independence for owners no later than the date on which owners turn over control of their companies.
Advisors must distinguish between how much money (expressed as an annual income amount) owners need upon exiting and how much income they wish or want to have. Achieving an owner’s financial need number is a prerequisite to any exit. Unless a business exit achieves that dollar amount, the exit (and all of the owner’s planning) fails.
Note: Unlike the amount of money an owner wants when he exits, an owner’s financial need is seldom subject to downward adjustment. That’s why owners and their advisors need to accurately determine the financial security need.
Keep in mind that most successful owners currently enjoy financial security. The question and challenge for Exit Planning Advisors is, “Can they maintain it after they exit their companies?” Usually, advisors must initiate significant planning and work for even those owners who are currently financially secure if they are to achieve post-exit financial security.
There are three goals that nearly all owners aim to achieve. They are:
- To leave their businesses on the date they choose.
- To leave their businesses for the money they want.
- To leave their businesses to the successor they choose.
Because all steps in BEI’s Exit Planning Process are owner-centric, you’ll see many more discussions of goals in future articles.
Values-based or “aspirational” goals are often the most influential of the three types of goals because they are related to an owner’s personal values and ethics. For example, some owners want to make sure that their businesses remain in their communities after they exit. Others want company culture or their legacy to remain intact.
Unless advisors help owners uncover their values-based goals early in the process, they often remain hidden until they emerge just before ownership transfers. At that point, it is often too late to address them, and the transfer process stops or the owner’s goals are unfulfilled.
Other common values-based goals include:
- Family Harmony
- Benefiting Employees
- Taking the Business to the Next Level
- Minimizing Taxes
- Quality Retirement
- Charitable Impulses
As owners work through and set these goals with help from their Exit Planning Advisor, they and their advisors should also be also working through the next step in the Exit Planning Process: determining resources. When these two steps are completed, then they can proceed through the rest of the Exit Planning Process or create a Component Plan to resolve an owner’s hot-button issue.
- The purpose of Exit Planning is to enable owners to exit on their terms.
- Owner-centric Exit Plans require accurate, advisor-led goal setting.
- The most important owner goal categories are:
- Foundational (post-exit financial need)
- Universal (target date, proceeds, and successor)
- Values-based (or aspirational)